As expected, German auto giant Volkswagen (OTC:VWAGY) reported a small profit for the first quarter of 2020, after its operations around the world were disrupted by the outbreak of the COVID-19 virus. But the company warned that the second quarter could be worse, although it sees a recovery by the end of 2020 -- and it still expects a full-year operating profit.

As the largest-selling automaker in China, VW was hit early by the effects of the pandemic. VW's first-quarter net income fell 83% from a year ago, to 517 million euros, on an 8.3% decline in revenue driven by a 23% decline in global deliveries. 

VW's numbers were in line with the estimates it provided in its preliminary earnings release on April 17.

The raw numbers

All financial results are shown in euros. As of April 29, 1 euro = about $1.09.

Metric Q1 2020 Change vs. Q1 2019
Revenue 55.054 billion euros (8.3%)
Vehicles delivered 2,006,000 (23%)
Operating profit, excluding special items 904 million euros (81.4%)
Operating margin, excluding special items 1.6% (6.5 pp)
Net income 517 million euros (83.1%)
Earnings per share 0.78 euros (86.5%)
Automotive net cash flow (negative) (2.518 billion euros) 4.5 billion euro decline

Data source: Volkswagen AG. "Automotive" results exclude results from VW's financial-services subsidiary. VW had no special items in the first quarter of 2020. It took charges totaling 981 million euros in the first quarter of 2019. Earnings per share are for ordinary shares, the German equivalent of common stock. PP = percentage points. 

As of March 31, VW had automotive net liquidity (cash and credit lines available to its core automaking business, minus debt) of 17.8 billion euros, versus 21.3 euros at the end of 2019.

The VW sign atop the company's corporate headquarters in Wolfsburg, Germany.

Image source: Volkswagen AG.

About VW's first-quarter 2020 results

  • Sales at the VW brand fell 16% from a year ago, to about 765,000. Operating profit fell to 481 million euros from 921 million euros a year prior, as cuts to incentives and pricing changes were unable to offset falling sales volumes, cost increases, and a shift in the mix of vehicles sold that favored less-profitable products.
  • Audi's sales fell 12% to about 268,000 vehicles, and its operating profit fell to just 15 million euros from 1.1 billion euros a year ago. Cost cuts didn't offset lower sales volumes and negative exchange-rate effects.
  • Porsche sales fell just 1.3%, to about 56,000 vehicles. But higher costs and unfavorable exchange rates exaggerated the impact on operating profit, which fell to 529 million euros from 829 million euros a year ago.  
  • Of note to luxury-brand watchers: Lamborghini sales fell 4% to 2,253 vehicles in the first quarter, while Bentley sales rose 28% to 3,302 vehicles. 
  • Operating profit at VW's financial-services subsidiary rose to 654 million euros from 638 million euros a year ago, on an increase in total financing-contract volume. 

What VW's CFO had to say

Frank Witter, who holds a title equivalent to a U.S. company's chief financial officer, acknowledged that the pandemic "substantially impacted" VW's first-quarter results, but said that VW is steering through the crisis with "focus and determination" as its recovery gets under way. 

We've taken numerous countermeasures to cut costs and ensure liquidity and we continue to be robustly positioned financially. The gradual restart, also of our factories outside of China, has begun. The health of our employees and suppliers remains the clear priority here. In Germany, the dealers have reopened since last week. We have thus taken initial steps together to get the business up and running again.

VW has resumed limited production at several of its European factories, but it has postponed plans to reopen its plants in the United States for the time being. 

Looking ahead: VW's revamped guidance

VW withdrew its prior guidance for the year on April 17. For now, it said that for the full year, auto investors should expect its deliveries, revenue, and operating profit to all fall sharply from 2019 levels, though it expects operating profit to remain positive. 

VW also said that investors should note that its ratios of capital expenditures and research and development to sales will both be above 2019 levels, as it will continue many of its planned investments despite falling revenue.